Windfalls close to pounds 2,200 as Woolwich storms on to market

Woolwich stormed on to the stock market yesterday, beating even the most optimistic expectations for its share price as it abandoned 150 years of mutual ownership. Bid speculation and the new bank's strong position in the buoyant south-east housing market gave it a flying start as a quoted company.

The shares, which had been expected to open between 300p and 330p, started trading at 373.5p before easing back to close at 334p as some traders attempted to drive the price lower to ensure cheaper shares in a series of auctions this week.

As with the summer's three previous flotations of giant financial institutions, demand from big City investors ahead of entry into the FTSE 100 index is expected to boost the shares in the first days of trading.

Even more than Halifax, Alliance & Leicester and Norwich Union, Woolwich received a boost from hopes it will be an early victim of an expected consolidation in the banking sector. Analysts said yesterday the shares were trading well above their fair value.

At yesterday's close, the average windfall for former Woolwich building society members was worth pounds 2,194. The minimum handout of 450 shares was valued at pounds 1,500 at the end of first dealings.

John Stewart, chief executive, admitted the share price was higher than expected, and more than twice Woolwich's initial forecast of between 175p and 200p, but said the price reflected "a very attractive set of businesses". With 5 per cent of the UK's mortgage market and a strong bias to the affluent south-east, where house prices have soared in the past year, analysts believe the new bank would be a choice acquisition for a larger financial institution.

Although relatively small in sector terms, the price of Woolwich shares in the market yesterday means the bank will stroll into the FTSE 100 index with a market capitalisation of over pounds 5bn. It is likely to be one of the 50 largest companies in the UK.

A sizeable proportion of former members have indicated they plan to sell their shares immediately. A series of auctions this week will see around 23 per cent of the shares transferred to institutional investors.

The crystallisation of more than pounds 1bn of windfalls is certain to add to fears that the consumer boom, barely touched by last week's Budget, is running out of control. The Consumers' Association yesterday added its voice to calls for restraint, writing to the Treasury Minister, Helen Liddell, with a demand for a 12-month moratorium on further conversions.

Woolwich members who hang on to their shares can look forward to the prospect of a second handout with Mr Stewart holding out the prospect of a distribution of excess capital. Woolwich is well-capitalised, with more than three times the minimum amount of Tier 1 capital that banks are required to hold.

If, as expected, Woolwich announces a share buy-back at next spring's annual meeting, shareholders could expect to share in another pounds 800m windfall. The driving force behind Woolwich's strong early showing was the growing expectation that the sector is ripe for consolidation. According to Salomon Brothers banking analyst John Leonard: "We're looking at a situation where the economics of further consolidation is pretty compelling."